Empirical testing of trade off theory and pecking order theory on companies in the LQ45 index on the Indonesian stock exchange

Determinant of the optimal capital structure is often debated among practitioners and academics. This debate has led to several theories about capital structure which attempt to explain the best funding structure between debt and equity of the companies. This study aims to test the trade-off theory and the pecking order theory of capital structure of the LQ45 index company in Indonesia. This study used pooled cross sectional system who obtained 104 as observational data. To analyze the data used SPSS 23 Version, using multiple linear regression models. The results show that firm size has no significant effect on capital structure, while CR and ROA has negative effect on capital structure. This study concludes that companies in LQ45 index prefer to use internal funds more than external funds, that means the pecking order theory is proven in this study.